Raymond has reported a larger than expected drop in sales in the first quarter of the current financial year. Sales have fallen by a sharp 59.6% to Rs 1,321 m. Though this is primarily on account of the divestment of its steel and cement division, the textile division of the company also seems to have witnessed slow down in sales.
Operating Profit (EBDIT)
Operating Profit Margin (%)
Profit before Tax
Profit after Tax/(Loss)
Net profit margin (%)
No. of Shares (eoy) (m)
Diluted number of shares
Diluted Earnings per share*
In FY01, both the cement and steel division contributed to around 33.9% of the turnover. With the divestment of these divisions, contribution of fabrics, denim and files divisions, as a percentage of sales, have increased substantially in the first quarter. As these are low growth segment, the company suffers on account of matured nature of these businesses. Garments, a high growth segment, contributed to just 1.2% of FY01 sales and the textiles business of the company is seasonal in nature and demand generally tends to pick up in the second half. So, the combination of these factors seems to have resulted in such a sharp drop in sales in 1QFY02. The comparative figures of the net sales of the existing divisions are as under:
The sales mix...
% of sales
Files and tools
% of sales
% of sales
% of sales
Operating margins have gone up sharply and is in line with our expectations because Raymond would directly save around Rs 1.3 bn as raw material costs with the sale of its cement and steel plants. The company had repaid debts close to Rs 2 bn in the first quarter and as a result, interest costs have fallen sharply. Depreciation charges have also come down due to the sell off.
The scrip is currently trading at Rs 84 at a P/E multiple of 8.9x the expected FY02 earnings. We expect Raymond to report around 32% drop in sales for the full year with a commendable increase in margins and profitability.
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